Financing the Climate Paradigm Shift

Africa’s leaders attending the COP21 conference have called for the commitment of more funding to help African nations adapt in the face of climate change. Representatives from the African Development Bank (AfDB) held a side event at the global climate conference that focused on adaptation financing needs for Africa. Adaptation measures include food security strategies and improved infrastructure around water management.

“Africa bears a disproportionate burden of the adverse impacts of climate change,” said Alex Rugamba, AfDB’s director of energy, environment and climate change. “Adaptation is therefore of immediate concern to Africa. It is incomprehensible that of all the issues that are so keenly important to the continent, adaptation would receive such little global attention.”

Rugamba added that according to the Organization for Economic Co-operation and Development (OECD), only about 14% of the resources mobilized for climate change has been allocated to adaptation. “Africa has been short-changed by climate change. It must not be short-changed by climate finance,” said AfDB President Akinwumi Adesina.

The problem is that the richer countries — the more developed countries that are contributing the most greenhouse gases — are asking the poor, less developed countries (which suffer disproportionately from climate change, and are contributing the lesser amounts of greenhouse gases) to foot more of the bill than they feel is fair.

The talk highlights one, if not the most, important underlying foundation of any present or future climate response agreement: financing.

Developing countries are only responsible for emitting a portion of greenhouse gas (GHG) emissions — the entire continent of Africa contributes around 4% of GHG emissions — while communities in developing countries are more likely to suffer from the effects of climate change.

For some leaders, such as India Prime Minister Narendra Modi, this is a moral issue. Developed countries should be willing to invest in or even compensate developing countries that are adversely affected by climate change.

But for the larger developed countries in Western Europe and US, the question of financing is only a political one. US President Barack Obama has pledged $500 million to the cause for the new year, but any funds the President promises are subject to Congressional approval. “For this [budget] year we’re seeking $500 million, and I hope we can get as close to it as we can, but we don’t know yet,” said Todd Stern, Pres. Obama’s chief climate negotiator, speaking at a press conference in Paris last week.

At present, the total global available financing to climate change is estimated to be between $350 and $650 million, according to the UN, but that isn’t enough. According to a report from the International Energy Agency, even if all the countries that have promised funds make good on those promises, the resulting $13.5 trillion worth of investments still wouldn’t be enough to curb global warming by 2 degrees Celsius over the next 15 years.

The Green Climate Fund

In 2009, world leaders gathered together in Copenhagen in attempt to reach consensus on climate change Those talks fell apart around the issue of who would be footing the estimated $30 billion needed between 2010 and 2012 to help the poorer, less developed countries develop climate mitigation and adaptation. The following year, delegates gathered again in Cancun and created the Green Climate Fund, where developed countries could pitch in to help the developing countries prepare for the imminent realities of climate change. The goal was to see developed countries commit $100 billion per year by 2020 to the Fund, from both public and private sector investments.

There are severe limitations to such a model; first and foremost being that the specifics of raising that $100 billion per year wasn’t addressed in the language. Consequently, the Fund has struggled to raise any funds, and has been recently criticized for its lack of efficacy. It’s initial target was to raise $10 billion before handing out monies for projects. It has around $9 billion in pledges from countries around the world; only $5.8 billion committed by law; only $852 million has actually found its way into the Fund; and a pitiful $168 million has been delved out for climate response projects to date.

The US promised $3 billion in 2014, but hasn’t actually contributed any money to the Fund yet. Groups from both the Senate and the House have pledged to block approval of any funding for the Green Climate Fund.

COP21’s Paris Agreement

The COP21 has been no different. Countries found financing to be a sticking point in negotiations, and ultimately countries failed to make much progress again. The intended nationally determined contributions (INDCs) fall short of curbing emissions to prevent the planet from warming by 1.5 degrees Celsius over the next five years. According to some estimates, the INDCs to date won’t curbing warming by 2.7 degrees Celsius.

The final Paris agreement, adopted by all participating countries, didn’t make any progress in addressing financial asymmetry in climate adaption and mitigation. Ultimately, the countries decided to continue funneling monies into the Green Climate Fund for the next five years, without making any more clear where the money would come from, or when.

Poorer, developing countries had hoped for a legally-binding commitment to the $100 billion annual fund, but the agreement only mentions it in the preamble.

Governments took it upon themselves to forge new organizations dedicated to supporting clean energy technology. India’s Modi announced the International Agency for Solar Policy and Application (InSPA), which aims to support solar power installations across Africa and other developing regions. Modi has invited 110 countries to join InSPA, and has announced plans to grow India’s solar capacity to 100 gigawatts by 2022, which will power an impressive 75 million homes in India. However, Modi’s plans to increase coal-burning power plants across India has drawn criticisms to his push into renewables, which some say would effectively render solar energy advancements useless. India is on track to become the largest source of coal demand growth.

Some countries have pledged to dedicate more funds to research and development for clean energy technologies and advancements. US along with 19 other countries have made commitments to increase funding available for clean tech R&D under the banner of “Mission Innovation.” The White House aims to double its current level investment in clean energy research and development over five years as part of Mission Innovation.

Participating countries range from North and South America, Europe, and parts of Asia, and have pledged a total of $10 billion to the cause.

Private Sector Investments

This go around, private investments are filling in the gaps where nationally-pledged funds fall short. Here’s a quick list of some of the bigger investments to be announced from the private sector:

Goldman Sachs announced it’ll triple money available for clean energy finance to $150 billion over the next 10 years. Goldman Sachs has itself pledged to be a carbon neutral company by the end of 2015. Citi Bank will offer $100 billion in clean energy finance in the next decade, the second of this type of commitment Citi Bank has made. In 2007, it pledged $50 million to invest over a period of 10 years in clean energy technology, but met its goal three years ahead of schedule. And Bank of America has announced it’ll increase funds allocated to low-carbon businesses to $125 billion. Those funds will be dispensed through 2025 via ending, investing, capital raising and advisory services.

The Green Bond Principles (GBP) initiative launched at the start of 2014 with support from 13 investment banks, aiming to support renewable energy and energy efficiency projects, as well as sustainable land use and biodiversity conservation.

The Green Bank Network

At the Paris climate talks last week, a group of six banks and two non-profits launched the global Green Bank Network, whose mission statement is “to mobilize private investment in renewable energy and energy efficiency.”

Green banks are public entities that partner with private sector firms to increase investment in clean energy technology. The Green Bank Network is comprised of participating green banks from US, UK, Australia, Japan and Malaysia. The Natural Resources Defense Council (NRDC) will help spearhead the project.

“Meeting commitments coming out of Paris will require a profound transformation in global energy investment,” said Shelley Poticha, Director of urban solutions at NRDC. “The Green Bank Network is a critical tool in this process and NRDC is excited to help facilitate the global scale-up of green banking.”

The Green Bank Network could bring “billions of dollars” in investments to the clean tech sector. To date, Green Banks have pledged around $40 billion in investments around the world.

As for the African countries that are struggling to adapt to new climate realities, AfDB estimates about 4% of climate change funds are flowing to the African continent, some of that coming from the Green Climate Fund.

Reactions to the Paris Agreement have been mixed. While most leaders praised the deal as a significant and historic step towards mitigating climate change, a number of delegates voiced disappointment: Nur Masripatin, negotiator for Indonesia, described the deal as “weak” and “not fair.”

Meanwhile, reactions from business and finance sectors around the globe have been more optimistic, signalling a roadmap to clean energy future.